Original text: "The Road to Value in Blockchain Investment"
Author: Ma Ma, founder of Continue Capital
What are you buying in the public chain market or blockchain industry? Or where is the way out for the blockchain business model?
The lack of expectations of the copycat market has caused many people to have doubts about the industry. In the complex environment of different development stages of the industry, it is inevitable that investment will be more difficult, but the fundamental problem is that you have to find a business model for the long-term sustainable development of the project.
Ten years later, I find that many people, even those who have been in the industry for a long time, still don’t quite understand why public chains have been dominating so many TOP100 lists, and why the top public chains have tens of billions and hundreds of billions of dollars, and they are flocking to them. But your coins are only worth millions and millions, and I like to simplify complicated things. I try to analyze them by peeling off the cocoons.
Starting from the first principle, "P = E * PE", that is, "stock price = profit * valuation", therefore in the long run, the only factors that affect the stock price are profit and valuation;
First, valuation PE. This is more complex and has many influencing factors, such as growth/interest rate/penetration rate/industrial space/how much water the central bank releases/monopoly, etc., which are all influencing factors that determine people to give different valuations to different stocks at a certain period of time, idol Buffett said Don’t buy BTC, because BTC has no cash flow (just think of cash flow as profit). In the long run, I think most of what you said is right. However, in the above stock price formula, only profit E is considered, and valuation PE is not considered. , so from another perspective, MEME/BTC are both in the same category and can be included in the PE factor. As long as your MEME keeps attracting people and people continue to buy it, your MEME can rise to a certain stage without creating cash flow on its own, but There is a very important premise: within a certain market value. The larger the market value, the more people you need to attract. Without continuous cash flow support, it is very difficult to sustain.
Second, profit E, we mainly discuss this. Profit comes from revenue, so if the stock price wants to rise, revenue must rise, so where does the revenue come from? It is a business model. By definition, it is a business activity that makes money by providing goods or services to others. To put it simply, it is how your company makes money. In 2006, Duan Yongping spent $620,000 to take a photo of Buffett's lunch. He asked a question that had been bothering him for a long time: What is the most important thing in investing? Buffett's answer is the business model. If a company does not know how to make money, it cannot develop sustainably in the long term. The core factor driving the continuous rise of the Seven Sisters of US stocks is profit, not other short-term factors.
The question is what is the business model of the currency circle?
Personally, it seems to be nothing more than: block space fees; SWAP fees, which are exchanges, including DEX/CEX; lending and spreads; stablecoins, pumping; MEV, which is parasitic on the block space. Everything else is easy to understand, except for the block space fee.
In fact, what is very secret is that the currency circle has created a new business model: selling block space, that is, the public chain is priced in GAS fees and charges block space fees. Global consumers purchase access and storage rights to global computing/bandwidth resources on a per-transaction basis.
I didn't understand a few words before. What is the "value" of the Internet? We know that most of the information on the Internet is free, such as pictures/texts/videos, etc., and a piece of information can be copied infinitely. Therefore, in the early days of the development of the Internet, people did not know how to Those who are profitable will slowly discover Internet business models through subsequent exploration, including making money from SaaS subscription services, advertising, making money from transactions (e-commerce), etc.
So what is the business model of blockchain? I later figured out the value Internet in the currency circle, which is a paid Internet. Every time you click, you need to pay GAS. The original intention of the blockchain is to solve the problem of currency attributes, which is very different from the free Internet. You cannot use a piece of money to copy it infinitely and pay it to others repeatedly. The free Internet cannot solve the currency problem. Therefore, in the process of extending from currency to public chain, its uniqueness is that it allows consumers to bear the cost of accessing and withdrawing block space. For decades on the Internet, companies have rented their own machine computing resources and paid AWS bills to provide products and services to customers, thereby charging fees and making profits. This is great when it comes to applications on the blockchain: users pay for the running costs of the project. Every year, global consumers pay billions to tens of billions of dollars for GAS, which is the revenue of the public chain. If the annual income is 10 billion, the government bond yield rate is 5%, and if you give 20 times PE, it will be a market of 200 billion, 10 times PE will be a market of 100 billion, and 50 times PE will be 500 billion, so this is the basis for the huge public chain market.
For example, the current issuance of USDT on TRX has reached 60 billion, accounting for half of the entire USDT market. I looked at the annual revenue of TRX in 2023, which was about 400-500 million US dollars, 75% of which was USDT transfer income, which is 4 With a profit of US$100 million, if we give a PE of 20 times, TRX with a valuation of 8 billion is reasonable. Of course, this is not the point. The point is, can this figure expand ten times in the next ten years or is it far more than ten times? How much future incremental market share can SOL's payment/open finance efforts capture? We are going too far, and we will not further expand on the topic of expansion here.
You have to understand that I am just trying to explain why the public chain market is huge, that is, I just elaborate on the existing phenomenon that you are willing to pay for GAS fees. I have not gone further into why you have to pay GAS and why there will be more in the future. More people come to pay GAS. Need to transfer payment? The need to get rich suddenly (Tuen GAS)? Need for entertainment (paying for a DAPP)? Need to trade coins/commodities/stocks/SWAP everything? You must know that if no one pays for GAS fees in the future, the public chain market will not exist. So now we often see some fancy terms. I don’t know if the currency circle is in its early stages of development or because it is difficult to implement and not be concrete. What they promote are some abstract words that are difficult for ordinary people to understand: scalable nature, ZK technology, L2, UTXO, chain abstraction, modularization, homomorphic encryption, parallel EVM, etc. Because I personally did not participate in the early development of the Internet, it was not until later that I learned that the terms modularization/monolithic chain originated from Regarding Internet technology, you are rarely mentioned in the Internet field. Instead, it is repeatedly promoted as a key point in the currency circle. Now I am very resistant to words such as narrative. Basically, I am familiar with the basic concepts and directly ask: This How much revenue can this technology bring me? How much profit can I generate to repurchase it? Otherwise, where is the market fit for your technology? I can support long-term deep cultivation of basic technologies/basic disciplines, but tell me how long it will take to get a clear business model? Two years, ten years or twenty years? More complex issues such as how to increase revenue GAS in the future and who can occupy the top market share are the focus of your consideration, although I have already selected $SOL
Therefore, since the public chain is a product with revenue, cash flow and profit, it is certain that its business model is clear and there is a way out. What is left is that you have to decide how to expand revenue, increase market share and reduce costs. Wait for actions that are in line with the business development path.
Many projects in the currency circle have no business model. Even he himself does not know how to make money. The survival rate of the world's top 500 companies is only 3%. Investment is about finding these 3% projects and holding them for a long time. Many investment concepts are very Simple, but very difficult to practice. There are tens of thousands of projects in the currency circle in the future. How to invest if you can’t see the value? Be serious about investing.
When the river is clear, how long will life be? Be less pretentious and unrealistic, and be more down-to-earth, otherwise you won’t have much time left.
This article Continue Capital's "The Road to Value in Blockchain Investment": Pursuing a Sustainable Development Business Model first appeared on Zombit.
